Diversified eREIT Pros and Cons

Nugget of the week

Pros: The main benefit of investing in diversified eREITs is that they offer a simple way for investors to raise the level of diversification of their portfolio through a single investment (without the fees imposed by REIT funds). By holding properties in multiple sectors with low (or better yet, negative) correlation, diversified eREITs can provide stable income with moderate share price volatility.

Cons: Diversified eREITs that branch out into additional sectors open the possibility of “diworsification”, i.e. worsening the risk-return profile of the company’s portfolio, e.g. by the management venturing into sectors that are too far outside of their core competencies.